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Letter from a Portfolio Manager to his investors: A historic recovery with some difficulties (Part One)

What a year 2021 we have had in the financial markets!

The recovery of Equities after the panic generated by the start of the pandemic in March 2020 has been totally historic. Despite the volatility, this historic year will go down in history, with records in corporate profits, retail sales, household income, and home construction, among others. 

Likewise, numerous challenges, such as the fight against COVID-19, increased inflation, problems in supply chains or labor shortages, have been permanent. Like any year, there will always be threats on the horizon. 

My goal in this semi-annual year-end report is to review what has happened in 2021 and share my vision for what we can expect from 2022.

Without a doubt, the main protagonists this year have been: i) COVID-19; ii) Inflation, iii) Central Banks, iv) Problems in supply chains, v) Historical growth of the American economy, vi) Business results in the US, vii) Technology and investment trends.


Given the news about the new Omicron variant, it was once again demonstrated that investors overreact first and then think and analyze. Although COVID-19 is still among us, economies and people have learned to live with it and we are much more prepared than in March 2020 to fight against it thanks to the vaccines and treatments we have available, in addition of the antibodies developed by a large part of the population after having suffered from the virus.   

According to the data that is being obtained, it is becoming clear that although Omicron is more contagious, it is less severe than the previous variants, which is something to celebrate. This is how viruses behave, each mutation is weaker than the last. The data is also showing that, although you can get infected while vaccinated, the risks of hospitalization are much lower. For this reason, I foresee and hope that more and more countries, just as the US has done, will rule out taking restrictive measures that would once again endanger their economies, maintaining the solid recovery of global activity.

In South Africa, where the variant was detected and cases skyrocketed in the month of November, the infection curve has been surpassed and is already decreasing, which bodes well for good news in the rest of the world for the coming months.

If another variant emerges in the future, it is worth remembering that it will probably follow the same script: initial panic due to lack of knowledge and uncertainty, discussions about possible confinements and restrictions, and finally, demonstration with results that it is less dangerous than the previous variant. Exactly as has happened with Omicron.


The latest inflation data in the US show a growth of more than 6%, the largest increase in 30 years, while for the Eurozone it reached 4.9% due mainly to the increase in energy costs.

Unstoppable demand, the ultra-expansive policies of the Central Banks (liquidity injections + interest rates around 0%), the trillions of dollars and euros that governments have dedicated to sustaining their economies, the comparative base effects (current year vs 2020, a year of global “break”, problems in supply chains and labor shortages help to understand these “alarming” inflation data.

Without a doubt, these are too “hot” and worrying increases…but Isn't it obvious to think that after a period of pandemic like the one we have experienced, in which global economies have been paralyzed for several months, time is required to recover and normalize activity?

I foresee that During 2022, inflation will ease and economic growth will be sustained thanks to:

  • He tapering initiated by the Fed that will end in March 2022 will help eliminate excess liquidity that the markets do not need right now.
  • Workers will continue to re-enter the labor market and companies will continue to resolve their supply chain issues.
  • Manufacturing activity in emerging markets (China and India are some of the world's largest manufacturers) will continue to pick up and accelerate.
  • The comparative base effect will also have a positive impact. In 2021, the sharp increase in inflation has been compared to 2020, a year in which it was lower than 2%. In 2022, the comparison against 2021 will be much more demanding.
  • The development of automation and robotization as a consequence of the lack of labor and the general increase in wages, increases productivity and reduces company costs. This trend, which will continue in the coming years, directly impacts lower inflation.

The Fed's latest forecasts also reduce inflation growth for 2022 to 2.6%, much lower than the current level.

On the other hand, although inflation is being a headache for investors, it is worth remembering that some inflation (not as much as the current one) is positive for the economy, since behind it there is economic growth. In fact, let us not forget that this has been the great objective of the monetary policies that the Central Banks have been carrying out for years.

Dan Benbunan

Portfolio Manager

Check my LinkedIn. Follow me in Twitter

Head of Investments & Strategy at RBU

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